July CPI Helps Case for Fed Cuts

Rates close little changed on inflation day. Today’s inflation data matched expectations across most measures, and rates were nearly flat as a result. Rates spiked ~7bps higher in the immediate aftermath of the inflation data but quickly fell back to earlier levels. The short end of the curve closed ~3bps higher while the long end closed ~3bps lower. Elsewhere, equities rallied on the avoidance of hot inflation figures, with the DJIA and S&P 500 rising 0.61% and 0.38%, respectively.

CPI continue downward trend. On a month-over-month basis, headline and core CPI growth in July were both in-line with surveyed estimates at 0.2%. Year-over-year, headline growth was 2.9% vs. 3.0% estimates, while core growth met expectations at 3.2%. Notably, core yearly growth declined for a 4th straight month to its lowest level since April 2020. Overall, the results were viewed as another step in the right direction toward Fed rate cuts.

Fed President Goolsbee is the latest policymaker to note concern about labor market. After stressing a week ago that the Fed must remain “steady” and not “overreact” to rising unemployment and slowed hiring, Chicago Fed President Goolsbee agreed that the labor market is becoming a larger priority for the Fed. He stated, “I’m getting more concerned about the employment side of the mandate.” Goolsbee added that if unemployment continues to rise, “then our emphasis has to be significantly more on the employment side of the mandate.”